The UK housing market remains ‘generally downbeat’, however there are several indicators demonstrating a more stable picture emerging through the course of 2023, according to the RICS UK Residential Survey for February.
The trade body says anecdotal remarks from survey participants also indicate that market conditions are improving, offering some hope for the coming months after a sluggish start to the year.
Most significantly, the headline reading for new buyer enquiries rebounded to a net balance of -29% (measured on a seasonally adjusted basis), improving from -45% in January. While this metric is still signalling a decline in demand and represents the tenth consecutive negative monthly reading for new buyer enquiries, it is also the least negative result since July 2022.
The new sales indicator was also less negative in February, improving from a net balance of -36% to -26%. However, the average time taken to complete sales continues to rise and is now approaching 19 weeks.
In an additional question included in the latest survey, RICS analysed the difference between ask and sales prices in the current macro climate. In the mainstream market (covering prices up to £500k), around 60% of respondents suggested that prices were being agreed at below the ask price. For properties priced between £500k and £1 million, the share jumped to just over 70%.
As far as the UK letting market is concerned, tenant demand continues to increase with a net balance of +32% reported.
Significantly, landlord instructions continue to decline, although at a lesser pace than in the recent months at -13%. Inevitably, given the ongoing imbalance, the headline rent expectations reading remains at a relatively high level of +45%. Moreover, this pattern is repeated across much of the country.
Tarrant Parsons, RICS’ senior economist, commented: “The housing market continues to adjust to the tighter lending climate, with stretched mortgage affordability still weighing heavily on activity.
“Given the ongoing weakness in demand, house prices remain on a downward trajectory, and are expected to see further falls through the first half of the year at least.
“Going forward, near-term expectations suggest market activity will remain generally subdued over the coming months, although the latest survey feedback shows tentative signs that the ongoing decline in buyer enquiries is now moderating”.
Sam Rees, senior public affairs officer a RICS, commented: “Ahead of the UK budget on 15 March, RICS is emphasising the critical role housing has to the UK economy, and the need to boost supply through new builds and commercial property conversions where appropriate whilst conforming to the strictest standards.
“RICS supports efforts to improve the energy efficiency of homes and the continuation of the government’s Energy Price Guarantee. Further fiscal intervention for consumers and businesses is required to scale up the retrofitting of UK homes and we welcome initiatives such as ECO+ that go some way in delivering such needs.
“With rising rents and diminishing housing stock in the private rental sector, the government must do more to support landlords who are leaving the market due to increasing cost and regulation challenges.
“Landlords continue to raise concerns with RICS on the lack of clarity and financial support from government to meet expensive energy efficiency improvement targets which is further pressuring landlords into exiting the sector.
“RICS would also encourage the government to restore the Local Housing Allowance to the 30th percentile to support those private renters who are struggling with rising rents.”
Tom Bill, head of UK residential research at Knight Frank commented, “The further we get from the mini-Budget, the more things improve in the UK housing market. Asking prices will continue to come under pressure as buyers recalculate what they can afford but the market is not about to go over a cliff.
“The weak start to the year for mortgage approvals means bigger lenders will be focussed on market share, which will keep downwards pressure on rates but the key for buyers is the overall sense of stability rather than movements in borrowing costs that are likely to be small.
“Transaction levels will come down from the heights seen during the pandemic and we expect prices to fall by a few percent but the evidence is that 2023 will be a solid year for the housing market.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, concurred: “These historically-accurate RICS figures confirm that the housing market continued to slow and became more price-sensitive in February but showed few signs of a correction
“Worries about the cost of living and availability of mortgages mean homes are taking longer to sell and keeping prices in check. However, recent falls in lending rates, inflation and increasing property choice is contributing to a readjustment in the previously severe imbalance between supply and demand which we expect to continue into the spring.
“On the lettings side, supply is slowing improving partly in response to last year’s sharply rising rents but is still not sufficient to meet demand, particularly for one and two-bedroom flats.
“On the other hand, we’ve also seen concerns about the cost of living keeping a lid on spiralling rents. Tenants may be increasingly feeling the pinch but many landlords believe they have no option but to increase rents to meet higher mortgage repayments and/or building costs in particular.”
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